S&L Buys Ahmanson In Deal for $10 Billion

Published 4:00 am, Wednesday, March 18, 1998

Bolstering its position as the nation's largest savings and loan, Washington Mutual Inc. of Seattle announced yesterday that it will buy California's H.F. Ahmanson & Co. in a $10 billion stock swap.

During the past decade, Washington Mutual has swallowed 21 other institutions to become the nation's largest S&L.

Last year, it beat out No. 2-ranked Ahmanson in a bitter battle for Great Western Savings. Ahmanson, the parent of Home Savings of America, responded by buying Coast Savings. But Ahmanson chief executive Charles Rinehart figured that was not good enough.

"We looked at the landscape and concluded there was not much opportunity to gain the scale we felt we needed to compete effectively," he said in a teleconference.

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In a classic case of "if you can't beat 'em, join 'em," Rinehart called his recent adversary, Washington Mutual CEO Kerry Killinger, two weeks ago and initiated takeover talks. Killinger was only too happy to make a deal to create the seventh- largest U.S. consumer bank.

When approved by shareholders and the government, the pumped-up Washington Mutual will edge out Wells Fargo as the second-largest consumer bank in the West, with nearly $150 billion in assets and 2,000 offices serving 6 million households.

"With this transaction," said Killinger, "we are creating a premier institution that will have the size and scope of the largest banks yet continue its focus on consumers and small business."

Unlike banks, S&Ls do not make large corporate loans. But Washington Mutual would be the West's largest mortgage lender and the nation's top adjustable-rate mortgage lender.

Terms of the deal call for a tax-free exchange of 1.12 shares of Washington Mutual common stock for each share of Ahmanson. Yesterday, Ahmanson shares rose $12.38 to $77.78 and Washington Mutual's shares rose $1.19 to $72.94, making the deal worth $10 billion.

The merger is expected to close in the third quarter of this year. The surviving company, called Washington Mutual, will be headed by Killinger. Rinehart plans to leave when the merger is completed, with three years' salary and a tidy golden parachute of exercised stock options.

As with other large mergers, many Ahmanson workers will leave involuntarily. Killinger estimates a loss of 3,000 to 3,500 jobs due to consolidation of 160 to 170 overlapping branches (mainly in California) and duplicate administrative staff.

Normal attrition will lessen the need to fire workers. Ahmanson's Rinehart said one of the reasons to merge now is that the job market is the best in more than a decade and this, along with severance packages, should "hopefully minimize the pain for those employees who would not be staying on."

Washington Mutual expects to cut the equivalent of 40 percent of Ahmanson's costs, saving $330 million a year by 2000.

Bankers Trust of N.Y. analyst Joe Morford said the merger makes sense but lowered his rating on Washington Mutual from "buy" to "market perform" yesterday because of greater "integration risk." He explained that Washington Mutual is moving from $22 billion in assets two years ago to $150 billion and "has a lot on its plate to digest," including last July's $8 billion acquisition of Great Western.

Consumer groups also are worried.

"The merger presents the potential problem of a quasi-monopoly on the majority of thrift assets in California," said Robert Gnaizda, general counsel for the Greenlining Institute. "We are concerned about the commitment to our communities by a company that has the majority of its assets in California but is an absentee owner."

Alan Fisher, executive director of the California Reinvestment Committee, another nonprofit, added, "We hope for expanded Community Reinvestment Act commitments but are concerned that the pace of consolidation will mean fewer branches and product choices for consumers."